Project 13.4

The questions in this problem are from a study by MacCrimmon, Stanbury, and Wehrung, "Real Money Lotteries: A Study of Ideal Risk, Context Effects, and Simple Processes," in Cognitive Processes in Choice and Decision Behavior, edited by Thomas Wallsten, (Hillsdale, N. J.: Lawrence Erlbaum Associates, 1980, pp. 155-179).

Question: You have five alternatives from which to choose. List your preferences for the alternatives from best to worst.

1. sure win of $5 and no chance of loss
2. 6.92% chance to win $20 and 93.08% chance to win $3.98
3. 27.52% chance to win $20 and 72.48% chance to lose 69 cents
4. 61.85% chance to win $20 and 38.15% chance to lose $19.31
5. 90.46% chance to win $20 and 9.54% chance to lose $137.20
a. Answer the question based on your own feelings.
b. Answer the question using mathematical expectation as a basis for selecting your answer.
c. Conduct a survey of at least 10 people and summarize your results.
d. What are the conclusions of the study.

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